Many clients will be scared and confused by the events of the past six weeks. In mid-February, global markets were poised to hit record highs. But by the end of March, they’d experienced one of the quickest and steepest drops in modern memory. It’s been a wild ride.
With so much bad news investors can become trapped in the moment and blinded to the future. As advisors, we know that markets always recover after corrections – although at varying pace. But many clients will not know that about that recovery story in the detail they need to put today’s events into a wider context.
FinaMetrica produces very detailed Risk and Return Guides to help you have these conversations with clients.
These guides give you the data you need to explain and illustrate that we have been places like this before, and we made it back. Detailed tables show how different portfolios have performed in each major market including the US, UK, Canada, and Australia
Of course, past performance does not indicate the future performance – we cannot know how long the correction will last, or how long a recovery might take. Rather, the guides show the patterns and possibilities of markets over time.
These guides are an invaluable tool for anchoring and framing clients’ investment expectations – and important step in helping them to make suitable decisions in these times.
What’s in the risk and return guides
There are two different resources to help you:
- Investment and return summaries – comparing six countries, using data from the past 40 years for 11 different portfolios
- Market-specific return and volatility summaries – providing detailed breakdowns of the rises and falls in each major market, including the number of months elapsed for major falls and recoveries
The guides can be accessed from the FinaMetrica dashboard, and are also available as PDF files from RiskProfiling.com in the ‘Support’ section, under ‘Risk & Return Analysis’.
Investment risk and return summaries
The summaries compare performance in six major countries over the past 40 years, across 11 model portfolios:
|Portfolio||% Growth||% Defensive|
For each of those 11 portfolios this guide provides the key facts for the period from the early 1970s through to 2019 including worst falls; best rises; 10-year returns and real return above bank deposits.
The example below shows a portfolio of 70% growth & 30% defensive assets and the inverse – a portfolio of 70% defensive and 30% growth assets.
Rises, falls and returns
This guide also provides a useful series of graphs showing the rises, falls and returns for each of the eleven portfolios in each of the six markets. These examples show the UK and US experience:
Detailed risk and return guides by market
These detailed guides include the ‘inside story’ of previous market booms and busts, including the number of months involved in each of the ‘top ten’ rises and falls.
This information is incredibly useful is showing clients the wide range of experiences the market can present to them. The guide details the extent of the gain and fall and the number of months it took to occur. For falls, it details both the number of months in the fall and the number of months it subsequently took to recover.
The story is a varied. For example, in the UK correction of December 1972 the market fell 26.9% over 24 months – but took just three months to recover, by March 1975. But it was different in September 1987 when the market fell 16.9% in two months, but then took 13 months to recover.
The tables below are taken from the UK guide and tell a multitude of stories when you interrogate them:
‘Top ten’ rises and falls
Similar guides are available for Australia; Canada; India; New Zealand; South Africa, USA, and Germany.